Friday, January 23, 2015

Tuesday, January 20, 2015

1/20/2015 Two Trades

Full model sold BBRY and bought GNW.

Sector model sold XLB and bought XLI.

Sunday, January 18, 2015

1/18/2015 Two possible trades


Sector Model
XLF
1.21%
Large Portfolio
Date
Return
Days
ESI
8/4/2014
-40.18%
167
EDU
10/27/2014
-8.23%
83
UVV
12/2/2014
1.05%
47
JOY
12/8/2014
-17.89%
41
MRVL
12/10/2014
5.36%
39
RS
12/11/2014
-13.07%
38
BBRY
12/24/2014
-5.19%
25
MWW
12/29/2014
-7.94%
20
JNPR
1/5/2015
-3.65%
13
COG
1/12/2015
-3.36%
6
(Since 5/31/2011)
S&P
Annualized
11.82%
Sector Model
Annualized
23.97%
Large Portfolio
Annualized
19.40%

 

Rotation: selling BBRY; buying GNW.

Also, a reset of the Sector Model shows an edge on XLF over XLB, and so I will trade to XLF if there is a favorable gap in the morning.

All of this depends in part whether I’m able to even get out of bed in the morning.  I have the flu.

Tim

 

Sunday, January 11, 2015

1/11/2015 Corrected Trade

CORRECTION:

On Monday the trade pair is to sell PLT and buy COG.

As always, a negative gap would prevent the trade.

Saturday, January 10, 2015

1/10/2015 More Yearly Return Metrics


Sector Model
XLB
-0.92%
Large Portfolio
Date
Return
Days
ESI
8/4/2014
-36.34%
159
EDU
10/27/2014
-6.13%
75
PLT
11/6/2014
-0.98%
65
UVV
12/2/2014
0.54%
39
JOY
12/8/2014
-13.99%
33
MRVL
12/10/2014
8.68%
31
RS
12/11/2014
-6.73%
30
BBRY
12/24/2014
-3.89%
17
MWW
12/29/2014
1.93%
12
JNPR
1/5/2015
2.67%
5
(Since 5/31/2011)
S&P
Annualized
12.29%
Sector Model
Annualized
24.66%
Large Portfolio
Annualized
20.85%
S&P
Total
52.01%
Sector Model
Total
121.77%
Large Portfolio
Total
98.28%
Sector Model
Advantage
12.37%
Large Portfolio
Advantage
8.57%
Previous
2015
S&P
53.06%
-0.68%
Sector Model
122.60%
-0.37%
Large Portfolio
101.13%
-1.42%

 

Rotation: selling BBRY (corrected on 1/11/2015) PLT; buying COG.

A careful reader noted that I had not included the rate of return for the Full Model last year.

I had a computer crash over the summer that eliminated some of my background data, but this is what I could reconstruct from the previous blog posts.

I’ve taken the annualized rates of return for the Full Model, the Sector Model, and the S&P for the posts on 1/1/2013, 1/5/2014, and 1/1/2015 to reproduce the total return from 5/31/2011 (when the models went live) on those dates.  Next, I reconstructed the return for the year from each date to the next.  Since one of the dates is 1/5/2014 instead of 1/1/2014, the returns will be off by a small amount.  But this is the best I could do from the blog itself:

From 5/31/2011
Full
Sector
S&P
1/1/2015
Annualized
21.50%
24.97%
12.59%
1/5/2014
Annualized
28.75%
22.65%
12.61%
1/1/2013
Annualized
27.20%
16.22%
3.75%
1/1/2015
Total Return
101.17%
122.57%
53.06%
1/5/2014
Total Return
92.95%
70.07%
36.19%
1/1/2013
Total Return
46.62%
27.01%
6.03%
2014
Year Return
4.26%
30.87%
12.38%
2013
Year Return
31.60%
33.90%
28.45%

 

I’ll dig through my files in the next week or so to see if I can reconstruct 2012 as well.

The Full Model had a bad 2014, tied to an error in my Fundamental Correlation Matrix that I’ve since corrected.  It should catch back up to the Sector Model in 2015.

Also, Steve Cohen’s STAR fund at Folio Institutional returned 29% in 2014, which was an accurate track of the Sector Model.  A good start to our little fund.

To this I’ve added on the Full Model report the metrics that I keep on file.  The additional lines are not usually reported, because they don’t add value on a week by week basis, but I’ll include them in the future at least once a quarter.  On 12/31/2014 I took a snapshot of the total returns, which are used to calculate year to date returns.  Currently those are all down for the year.

The market pundits are screaming about bear markets and such, but I don’t time.  Even if I were 100% convinced of a bear market I would not time.  There is a reason behind that strategy, best elaborated in Taleb’s book Antifragile. The book is a sheer delight and covers an important topic about constructing systems that gain from disorder.

My own model isn’t quite “antifragile” in respect to the dollar, but its defensive nature makes it robust enough to appear antifragile in relation to the S&P.

To show how this works, here are the return rates against SPY for the Sector Model back-tests:

Date
SPY
SPY%
Sector
Sector%
Advantage
12/31/2014
205.54
13.46%
24833.09
36.12%
22.66%
12/31/2013
181.15
32.30%
18243.38
42.36%
10.05%
12/31/2012
136.92
15.99%
12815.31
28.95%
12.95%
12/30/2011
118.04
1.89%
9938.44
6.23%
4.34%
12/31/2010
115.85
15.06%
9355.89
17.54%
2.48%
12/31/2009
100.69
26.35%
7959.91
58.07%
31.72%
12/31/2008
79.69
-36.79%
5035.68
-16.37%
20.43%
12/31/2007
126.08
5.15%
6021.19
21.85%
16.70%
12/29/2006
119.91
15.84%
4941.50
17.82%
1.97%
12/30/2005
103.51
4.83%
4194.23
-0.49%
-5.32%
12/31/2004
98.74
10.70%
4214.90
30.96%
20.26%
12/31/2003
89.20
28.18%
3218.55
36.48%
8.30%
12/31/2002
69.59
-21.58%
2358.30
-7.58%
14.00%
12/31/2001
88.74
-11.76%
2551.61
25.68%
37.44%
12/29/2000
100.57
-9.74%
2030.29
18.47%
28.21%
12/31/1999
111.42
20.39%
1713.72
35.30%
14.91%
12/31/1998
92.55
1266.59

 

These can then be used to create the following forecast metric on expected returns in different market conditions:

SPY%
Sector%
Advantage%
50%
58%
8%
40%
50%
10%
30%
41%
11%
20%
33%
13%
10%
25%
15%
0%
16%
16%
-10%
8%
18%
-20%
-1%
19%
-30%
-9%
21%
-40%
-17%
23%
-50%
-26%
24%

 

The graph of these relationships shows that the worse the market gets, the better the model outperforms:



 

So, if there is a bear, I’ll lose money – but will be so far ahead of the market that I will recover at a much better advantage than I was before the chaos.

I have to keep reminding myself of this during these painful whipsaws we are having lately.  Losing money hurts, and it’s easy to get spooked and cash out at the bottom!

Tim